Industry-Specific Capital and the Wage Profile: Evidence from the NLSY and the PSID

Abstract

Using data from the NLSY (1979-1991) and from the PSID (1981-1987), l seek to determine whether there is any net positive return to tenure with the current employer once we control for industry-specific capital. Using data from the PSID, Topel (JPE 1991) concluded that 10 years of seniority with an employer translated into a net return of about 25%. However, once l include total experience in the industry as an additional explanatory variable, the return to seniority is markedly reduced when 1 use GLS while it virtually disappears when l use IV-GLS, although this conclusion varies somewhat according to the occupation category. Note also that this result holds whether the analysis is carried out at the 1-digit or 3-digit levels. Therefore, it seems that what matters most for the wage profile in terms of human capital is not so much firm-specificity but industry-specificity. In other words, for these two samples of workers, the wage formation process appears to be quite competitive.